MTV-Owner Viacom to Purchase U.K.’s Channel 5 for $761 Million

May 01, 2014 9:40 am ET

May 1 (Bloomberg) -- Viacom Inc. said it will acquire the U.K.’s Channel 5 for 450 million pounds ($761 million), giving the owner of MTV and Comedy Central a new stage for its shows in Britain and a chance to create programs for the local market.

Sumner Redstone’s company will pay cash to buy the broadcaster from Northern & Shell, the publishing company owned by Richard Desmond. The purchase will immediately boost earnings, according to a statement from New York-based Viacom, which also today reported second-quarter profit that beat analysts’ estimates.

Viacom is buying a station -- known for provocative reality-TV shows like “Britain’s Crime Capitals” and “Celebrity Big Brother” -- that also airs popular U.S. fare including “CSI New York” and “The Mentalist.” Channel 5, with about 42 million viewers in any given month, gives Viacom an opportunity to capitalize on its U.S. programming in Britain and introduce U.K.-created content to global audiences.

“Viacom’s willingness to do a deal and focus on international is encouraging,” Todd Juenger, an analyst at Sanford C. Bernstein & Co. in New York, said today in a note. “It gives Viacom another owned distribution vehicle to monetize its content.”

Viacom fell 2.1 percent to $83.24 at 9:34 a.m. in New York. The Class B shares of the company have declined 2.7 percent this year through yesterday.

Desmond, who once owned the license to publish Penthouse in the U.K., bought Channel 5 from Bertelsmann AG’s RTL Group SA in 2010 for 103.5 million pounds. As the proprietor of Britian’s Daily Star and Daily Express newspapers, Desmond used the tabloids to promote programs like “Big Brother” on Channel 5, which began airing in the U.K. in 1997.

Viacom Earnings

Desmond, 62, is ranked the 23rd richest man in the U.K. with fortune of $2.5 billion, according to Forbes. He initially sought more than 700 million pounds for Channel 5. An initial public offering instead of selling was also under consideration, people familiar with the plan said.

The acquisition will be financed by existing Viacom cash balances, the company said.

With the purchase, Viacom significantly increases its U.K. revenue, according to London researcher IHS Technology, which estimates the company had $360 million in revenue the country while Channel 5 pulled in $584 million.

“Viacom is more than doubling the size of its business and so this deal stacks up financially,” said Tim Westcott, a media analyst at IHS Technology. “It’s also good because Viacom has a big program library that’s suited to the younger Channel 5 demographic with MTV.”

Separately today, Viacom said earnings per share for the second quarter totaled $1.08, according to a statement. That compared with the $1.05-a-share average of 27 analysts’ estimates. Revenue rose 1.2 percent to $3.17 billion.

Movie Releases

Revenue from Viacom’s main business of cable channels advanced 6.4 percent to $2.38 billion from a year earlier, the company said, citing gains from Comedy Central.

Sales at the Paramount filmed entertainment division fell 12 percent to $831 million. The studio released the big-screen epic “Noah,” featuring Russell Crowe, during the period. The movie has grossed $320.5 million in worldwide ticket sales, according to researcher Box Office Mojo.

Paramount is set to release three big summer films in the coming months, a critical chunk of the studio’s 2014 slate. “Transformers: Age of Extinction” featuring Mark Wahlberg opens on June 27, followed by “Hercules” on July 25 and a new “Teenage Mutant Ninja Turtles” release on Aug. 8.